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NNPC extends crude oil swap to April

By on March 28, 2016

The Nigerian National Petroleum Corporation (NNPC) has again shifted the timeline for the planned commencement of its new crude oil trading and products sourcing arrangement, the Direct-Sale-Direct-Purchase (DSDP), to April.

The DSDP is expected to replace the crude oil for product swap programme, which its terms had earlier been pronounced to be corrupt.

By extending the commencement date of the DSDP, NNPC has extended further the stop date for an interim crude for product swap arrangement it set up after overhauling the former and putting it to last for only three months – from October to December 2015.

In September 2015, NNPC announced its overhaul of the swap programme because it said it was corrupt, and then engaged three of its joint venture companies – Duke Oil, Carlson and Napoil – on interim basis to sustain nationwide supply and distribution of petroleum products.

However, THISDAY gathered that the interim swap programme which was originally designed to run for only three months but has now gone on for six months is being kept by the corporation because of the lingering scarcity of petrol in the country.

THISDAY learnt that agreements with successful applicants in the DSDP was yet to be signed by the corporation partly because the scarcity has been persistent for weeks now and bites hard across cities and villages in the country.

The corporation, in an official statement that was signed by its spokesman, Garba Deen Mohammed, at the weekend said it was carrying over the interim swap to the first week of April when the DSDP will commence.

This new shift in date is the second the corporation would be making, having moved it from December 2015 to the first week in March 2016 when the Minister of State for Petroleum Resources, Ibe Kachikwu, said the DSDP would start.

“For long-term solutions, the NNPC and the government is working to put in place machineries to ensure that our refineries are fixed and working optimally, while the pipelines which have been under attack for some time now are repaired.

“The Direct Sale Direct Purchase (DSDP) arrangement for crude would commence in the first week of April and all these coupled with the fact that the President has given his support to increase the crude supply to NNPC to ensure local sufficiency of products will go a long way to solve the problems in the short and long term,” said NNPC in the statement.

While the NNPC under the old order exchanged crude for petroleum products through third party traders at a pre-determined yield pattern, the DSDP accordingly obliges it to allocate a certain volume of crude oil within the period for refining at offshore locations in exchange for petroleum products at pre-agreed yield pattern.

Meanwhile, experts in the Nigerian oil and gas sector have expressed doubts that Kachikwu’s plans to set up strategic reserves of petrol to cushion in-country shortages would work out well.

The experts, who crave anonymity, however, explained that without a commercial framework to maintain such strategic reserve, Kachikwu’s plans, which he recently disclosed would be difficult to succeed.

Another team of experts from the International Institute for Petroleum Energy Law and Policy (IIPELP) also told THISDAY that the concept which Kachikwu is currently throwing around was not entirely new to the country.

“Basically, the concept of strategic reserves is already embedded in the design of the pipelines, refineries and the storage system.

“So, that concept is not new, it was built in the designs when the refineries were built and linked with a pipeline system to support it. The design of that pipeline system had two purposes, one was equalisation and so you have the Petroleum Equalisation Fund, which is a refund and the tariff that is paid is on a postage stamp approach so that the products can be sold on same price levels across the country,” said the IIPELP experts.

They further explained: “The pipeline design was meant to do that, and attached to the pipeline and the refineries are storage systems and so when you produce, you store, and in places where there is less supply, you could call on what you have stored and then you restore the balance subsequently.

“Attached to that system also is the Atlas Cove Single Point Mooring (SPM) which you can supplement through importation. So, this is a classic case of something that was very well designed and built with a network and a storage system backing it. And so, the strategic reserve is already in place; what is not functional now is a lack of a commercial framework.”

The other experts stated that with the government insisting that it (petrol) must be at a certain price, whereas that price is not workable commercially and the NNPC becoming quite monopolistic in products sourcing and importation, Nigeria would continue to experience shortages in petrol stock.

“I will be very clear on this, the basis for which you can run that entire system is that you must have a commercial framework, nobody can continue to invest money on a loser.

“Right now, there is no pipeline tariff in the PPPRA template, there is a tariff for bridging but there is no tariff for running the pipelines, so the concept of a strategic reserve will fail if there is no commercial basis for doing it,” said the expert.

He further noted: “I am saying that the strategic reserve is already in existence and built with the refineries but politicians have interfered with that framework of commercial determination of prices and it is through Section 6 of the Petroleum Act which they use to be setting prices unreasonably and that does not reflect the commercial framework for which you can run the system well.”

“So, the pipelines need upgrading and you leave NNPC to do it, today NNPC has no money because it has spent all that money trying to fix pipelines and do the impossible, NNPC is not CBN which prints money and so when pipelines are broken into, there is no revenue framework for running the pipeline system because it is not in the PPPRA template.

“Without a revenue mechanism, you cannot have a strategic reserve because it is not being paid for in the budget,” he added.

He noted that the lingering fuel scarcity could only be resolved, “if the government stops promising what it cannot deliver because it costs money.”

“We are going to bankrupt this country if we are not careful, this country will be going to the IMF very soon and we are going to be bankrupt it if we do not stop spending money recklessly.

“I think the government should deregulate, set up rules for people to participate and then you can charge a fee for maintaining the strategic reserve because there is currently no commercial framework to do that, I think this is another promise that will fail,” he said.

He said the NNPC becoming a sole importer of petrol in the country would eventually become a bad practice, adding: “Imagine if ExxonMobil is the sole supplier of fuel in America, there will be queues and this is what is going to continue to happen here because the NNPC is the only one supplying. The private people are not supplying because they do not know where to go and borrow money to give away to people, it is only the government that can do that.”

“Government cannot supply the dollar for all the import while NNPC can because of all the swap and OPA that they get into. But, is that what we should be doing with vital dollars?

“I think energy is supposed to be an input to industrial development or development in general. It is not supposed to be merely income. We need to be able to convert energy for other use, as a fuel for the economy and not an income where we sell the primary product and import everything. It is better to adopt market-based policies against command and control policies that don’t work,” the expert stated.​

 

[ThisDay]